Eyeing the success of crossing systems in the equities market, FlexTrade Systems has launched what it claims is the first block trading system for FX currency pairs. Dubbed MilanFX, the anonymous crossing system is aimed at helping commodity trading advisors (CTAs), hedge funds, real-money managers, sell-side firms and spot-FX desks execute large trades without market impact, according to the Great Neck, N.Y.-based multi-asset execution management company.
"Algorithmic trading works great when you are trading reasonable-size orders," explains Vijay Kedia, president and CEO of FlexTrade. "[But] lots of times both the buy and sell side have challenges when they are trying to unload a large block."
FlexTrade's move into block FX trading follows the success the company has achieved in FX algorithmic trading. Over the past two years, according to Kedia, FlexTrade has developed a presence in the FX community, establishing connections to 25 banks and 25 customers. But trading large FX blocks has its own set of challenges, he points out.
"It's a challenge today for both the buy and sell side to trade a block without leakage of information," Kedia says. Today, the buy side will telephone a half dozen counterparties, and the banks will end up calling large CTAs and other banks to find the contra side, he explains. This process is prone to leakage by virtue of making the call, Kedia suggests.
Because MilanFX is a dark service in that it doesn't publish quotes, "No one knows there is interest in the currency pair," asserts Kedia, who says the MilanFX system publishes a midpoint price, which it calculates from aggregating feeds from half a dozen prime brokers. A buy-side firm can peg its bid or offer to the midpoint price, he explains. To access the system, Kedia adds, traders must place a real order so there is no gaming. "You can't game or sniff," he contends.
If somebody places an order, Kedia continues, that particular pair will be highlighted orange, meaning there is interest or liquidity in the system. Others don't know if it's a buy or a sell order, he notes. If someone happens to be on the opposite side of the order, then the pair will match, Kedia says, adding that MilanFX covers all the major currency pairs, including Euro/U.S. dollar, Euro/Japanese Yen and U.S. dollar/Canadian.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio